Lessons learned and unlearned

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What Do You See?

What do you see when you look at this chart?

This kind of stuff fascinates me, Vera. Humans are basically the same, yet in certain respects we are vastly different. Take, for example, the above graph. People will look at it and see different things.

Some people will see a bubble that’s sure to burst, triggering massive investment losses on the part of both institutions and retail investors alike.

Others will see opportunity, specifically, more room to run for internet stocks (which have been the driver of the stock market for more than a year).

Still others will be more focused on what they don’t see as opposed to what’s on the graph. They will posit that this time is different. Specifically, they’ll talk about the ways digital technology and the internet are transforming the world unlike any prior technology, thereby justifying high, sustainable multiples.

There’s no way to know who is right merely by looking at the graph. You can only make your best judgment. And that’s where history comes into play.

Many people aren’t interested in history. They find it boring. My guess is that’s chiefly a product of boring classes in high school. I never had one good history teacher in either junior or senior high school. From what I’ve seen and heard, there are a lot of bad history teachers out there.

That’s a shame, because we can learn a lot from history. You will hear that history doesn’t repeat itself but that it rhymes. I’m not sure I buy it. It certainly looks to me like it repeats itself an awful lot, albeit with players who have different names and customs.

In any case, whether it repeats itself or merely rhymes isn’t the point. The main point is that history reveals really important stuff about the world and human nature in particular — our traits, tendencies, biases, etc. Consequently, an understanding of history can help us avoid big mistakes.

But just because it can doesn’t mean it will. Indeed, we learn from history that we often fail to learn the lessons of history. So we make the same mistakes, over and over again.

People can look at the above graph and spin any kind of narrative they chose. But history — not only the history shown in the graph but history going back much further — tells us that the red line will reverse, in a dramatic way. It won’t tell us exactly when or exactly how far it will drop, but it will tell us that a decline is inevitable.

Yet many people resist. They can think of all kinds of reasons it will be different this time.

But history has a way of having the last word. And when you ignore the historical evidence, you do so at your peril. Unless this time is different.